Chhatwal further says that Indian Hotels’ combination of capital heavy and capital light businesses which is today at 40-60 and could grow to 30-70, with 70 in favour of capital light, will drive both operating leverage as well as margin expansion.
Markets always try to look at two basic metrics, which is occupancy rate and what is happening to the ARR, but that is perhaps the sideshow. For me, the real number is that the consolidated revenue for the year gone by growth has been in mid-teens. It is solid, it is stable. Do you think these growth numbers will sustain?
Puneet Chhatwal: Absolutely and that is the guidance we have given on our double-digit top line growth and I will give some factors which makes us believe in that. Number one, the most important demand continues to outpace supply as very limited supply got added during the Covid time and it takes time to build hotels. The demand base is very strong with foreign tourist arrivals yet to go to the pre-Covid phase, that is number one, a very important point. Number two, we have become a very high growth company. So, our not like for like growth comes from 20 hotels that opened last year and around 15 that opened the year before that and in the last financial year we have signed 53 new contracts, which means signing a contract a week, and we have guided that we will open a minimum of two hotels this year, the guidance is of 25 and our stretched goal is around 30.
All this is on a capital-light business model. When I say capital light, it means management contracts and operating leases for our Ginger brand. Our not like for like growth will help us for any kind of headwinds that might come in one month or the other, but for at least three years, given the figures that Horwath HTL has given more than 10% compounded growth in demand, we are very well positioned with the number of locations, the diversity of our top line, as well as the kind of portfolio we have divided over leisure destinations, business destinations, and more than 50 spiritual destinations.
I come to point number three, which is very critical – infrastructure growth that the government has been driving in the country. If we get to more than 150 airports, if we get to the new trains, bullet trains, Vande Bharat, etc, what I call the renaissance of the train stations and if we are getting into another 100,000 kilometres of four-lane highways, all that is going to support this sector for many decades to come and not years to come.
And last but not the least, there is a fundamental shift, be it because of the growth in GDP, be it because of the growth in people earning more than $10,000, currently 60 million, projected to go to 100 million, as well as the additions like Bharat Mandapam in Delhi or the Yashobhoomi in Delhi or the Jio in Mumbai or the Kolkata Convention Centre, There is a structural shift and we have not even captured 5% of the possible demand that these big centres could bring into the sector going forward.
You have opened one hotel a week, that makes it 52 hotels for the financial year gone by. Is it possible for us to perhaps understand how much of the growth is coming from new properties and how much from historical properties, which are more than five years old?
Puneet Chhatwal: Currently, we have defined and differentiated it into new businesses and are traditional and we are at almost 14% of our top line is coming through the new businesses and the projected short-term is at 20%. But that is something the management worked upon in the last five-six years is driving operating leverage in our traditional business, in our iconic assets, by implementing and executing on effective asset management and driving margin expansion through the capital light business model, which I just spoke about.
Taj and Indian Hotels is the leader by any yardstick. But what is the right way of looking at the market share of IHCL because you represent multiple categories and that is one matrix markets always look at?
Puneet Chhatwal: So, because of the diversification of the top line, there are various ways to look at this. We are absolute leaders with iconic palaces that we have and we maybe have 80% of the share of the market. If we look at our flight kitchen business in a joint venture with TajSATS, we have 60% market share, which used to be around 37-38% in the past.
If we look at normal business hotels, whether they are branded as Taj or Vivanta or under our name collection of selections, then it is anywhere between 15% to 20%, because that is a very large chunk of the market. So, all in all, if we can maintain more than 15% of the total share of the market, which is in terms of branded supply of rooms is 180,000 rooms, less than 200,000, then we will continue to drive growth, drive penetration, drive premium results, especially because coming from the house of Tatas, we also go and build new destinations. It takes time, but we also get the premium when these destinations open and attract a lot of new business. And in the past, like five decades, Goa is an example. Four decades ago, Kerala is an example. Today, Havelock in Andaman is an example. Tomorrow, it will be the Lakshadweep and Ayodhya in India which will be an example and benchmark for us.
You have incubated a lot of new businesses during Covid. When the hotel industry was on a brink of existential crisis, Indian Hotels and Mr Chhatwal and his team, decided to expand and experiment with different formats. That is visible now in the contribution coming from the new businesses. How are the new businesses doing and what are you planning to incubate in FY25 and beyond?
Puneet Chhatwal: Firstly, we have come up with a new organisation and that is also in the numbers, which is dedicated and focused on new businesses. That means the new businesses, which have been reimagined include Ginger, Ama and Qmin. In its very first year of reorganisation, hardly six months ago, we have seen an exponential rise in signing 104 homestays last year. This is besides the 53 hotel contracts that we signed.
So, our portfolio of Ama has now grown to more than 200, of which more than 100 are operational and the number of homestays coming into operations will rise exponentially. Number two, we are also very pleased to announce that Qmin, which has been launched during Covid as a home delivery business, has also migrated into home delivery and quick service restaurants.
We call it the Qminisation of Ginger. All Ginger hotels, all day dining will be Qmin. Qmin has crossed Rs 100 crores in GMV for the first time in the last financial year. Half of it is coming through QSR, half of it is coming through the delivery business. And with Ginger, the story really started with the opening of Ginger Mumbai Airport at Santa Cruz. Of course, the name is old, but we reimagined the brand and now our lean luxe portfolio is 75% of the total Ginger hotels in operation and the lean luxe portfolio is driving more than 50% operating EBITDA margin which we are very pleased and there is still room to grow on that front.
So, all in all, new businesses over the next three years should see 30% CAGR and that is what we have guided yesterday in our press release going forward and this will be mainly driven through these three brands that I have mentioned. Besides that, in the next six-eight weeks we are launching the first two hotels under our reimagined Gateway brand. So, we are bringing Gateway back into our portfolio and we have also given the list of first 15 hotels that will be branded as Gateway and will open as a combination of new construction as well as some of the rebranding over the next 18 months.
I have two follow-up questions, one is short term and the second is long term. I will start with the short term first. If I compare FY24 with FY25, in FY24 there was the advantage of G20, World Cup and Spiritual tourism because of Ayodhya. Those factors may be missing for FY25. As you talk about FY25, what can you share with us?
Puneet Chhatwal: Currently, despite all the holidays in the first two weeks of April, we are still trending at a top line which is more than 10% in the total revenue. We do not see a change in this trend because we benefit from the demand-supply imbalance. As I said, our not like for like growth will continue to assist us in driving performance. But having said that, the impact of the G20 is not just one year.
The Bharat Mandapam was built for G20. The Yashobhoomi, as I said before, these centres are going to capture large events even in the short-term totalling 2,000-3,000 people events and they need accommodation somewhere. So, in the key markets where we have the leadership, like Delhi, like Mumbai, like Bangalore, like Kolkata, we are very well positioned to benefit from that uptick.
There will always be something that is not a constant in the market, but also some things in our portfolio will not be constant. We did not have the Taj Mahal Hotel, Delhi, for a full 12 months last year. We did not have Ginger, Santa Cruz Airport, which opened only for four months of last financial year. We did not have Taj Usha Kiran Palace in Gwalior. So, all in all, we are very comfortable in giving the guidance in the short term that what we promise, we deliver and up till now whatever we have promised, we have delivered a bit ahead of time.
As you grow, the benefits of operating leverage has kicked in, which is for the benefit of our viewers, PAT has grown at a percentage which is higher than the top line. Can you maintain this kind of an operating leverage advantage because 30% margins are hard to stretch beyond the limit.
Puneet Chhatwal: There is a key learning from the management and a very important belief. Asset heavy or capital heavy assets are really an opportunity. If the renovations that happen there and the usage of space, the return per square feet in these properties is a very big opportunity. So, Taj Mahal Hotel, Delhi, is a very good example where the license fees went up by more than 80%. We invested Rs 250 crore to renovate and reposition the hotel. It still ended up in ten-and-a-half months post renovation in a high PBT positive number close to the contract we had earlier.
So, the iconic assets in very important locations present a very big opportunity because there is lots of space. If you had to acquire that space today, it would cost a fortune. There is still a way to go with our assets like Taj Lands End and Taj Mahal Palace in Colaba. There are a lot of opportunities in Taj Palace in Delhi, St. James Court in London.
We have a good set of assets and if we keep investing intelligently based on both satisfying the customer needs and wants at the same time not forgetting the return on capital employed, we will be in a very good space and our combination of capital heavy and capital light which is today at 40-60 and could grow to 30-70, 70 in favour of capital light, and drive both operating leverage as well as margin expansion.
So, I am assuming there is scope for expansion, at least at the operating leverage front, which will automatically lead to a bottom-line boost. In the last three years, you have created new businesses, you have made the balance sheet healthy. The company has made a comeback. How do you see the next three years moving? The hospitality sector is in a boom, yeh ghar ghar ki khani hai (for every company).
Puneet Chhatwal: That is true but I will say abhi picture suru hui hai (the movie has just started) because we have more than 90 hotels in pipeline of which only 25 to 30 will open this year and we have not stopped signing new contracts. If we end up opening 100 more hotels in the next three to four years, of which 10-15% is capital heavy and the rest is capital light, I believe that the growth journey and the growth story will continue despite any headwinds and some will definitely come.
So, despite any headwinds that might come our way, the important fact is Indian Hotels is not just an iconic hotel company anymore. It is the most profitable hotel company, but the highest growth company in the sector in all segments. We are going to spend a huge amount on digital to improve our competitive advantage in data lake, in our ERPs and we will continue to invest in the communities that we work in and I feel that our customers will continue to reward us and use our brands as a preference and choice going forward.